Democrats push tax reform; GOP wary of shift

AUGUSTA, Maine — Democrats, including Gov. John Baldacci, want to reform Maine’s tax structure this session, but many Republicans and business leaders worry there will be more tax shifting — or tax shafting — than tax reform.

“Tax reform is an important goal for this legislative session,” Baldacci said in an interview. “I share the goal of reducing income taxes on Mainers as part of tax reform, but I am not certain of the best way to accomplish that.”

Baldacci said he has not seen any specific plan from lawmakers and will consider any plan that is proposed to accomplish his goal of lowering the income tax rates.

Democratic leaders of the Taxation Committee, however, think they have the solution. As they did two years ago, they want to expand what is covered by the sales tax and use that money to lower the income tax rate. They stress that any plan will be “revenue-neutral” and not add to the overall amount of taxes paid by Mainers.

“We know that our top income tax rate is too high and kicks in far too soon,” said Rep. Tom Watson, D-Bath, co-chairman of the Legislature’s Taxation Committee. “We also know our sales tax base is very narrow, and that makes it very volatile in a recession like we are having now.”

He said that while a reform plan has not been completed, it would be similar to one crafted two years ago that passed the House but failed in the Senate. It will propose extending the sales tax to items not now taxed, and may propose taxing some items at higher rates and using the revenue that is raised to lower the income tax rates.

“We learned our lesson last time,” said Sen. Joe Perry, D-Bangor, co-chairman of the Taxation Committee. “This is being carefully drafted and we are going to take the time to sell this to the Legislature and go on the road to convince Maine people it needs to be done. When you explain to people what it is we want to do, they like it.”

He said the more ambitious tax reform effort in 2007 failed because he and other supporters had not taken the time to explain the plan both to lawmakers and the public. He said that in the weeks and months ahead there would be a major effort to explain the final proposal to the public, as well as to lawmakers.

Watson said that while the plan is not complete, drafters have settled on the general philosophy of extending the sales tax to discretionary spending items such as movie tickets and ski lift tickets. He said some discretionary spending items now are taxed, but many are not.

“We want to export more of our taxes to visitors like others states are doing,” Perry said, “and use the money we generate to lower the tax burden on Mainers.”

But as the Democrats work on their plan, they are finding few takers among Republican lawmakers, including the co-sponsor of the effort two years ago, Sen. Richard Nass, R-Acton.

“The Republicans, so far, are not particularly interested,” Nass said. “We think the emphasis should be on reducing spending to reduce taxes.”

But Nass said he still believes there needs to be a reform package that takes the volatility from the sales tax by broadening the base. However, he said there is little, if any, GOP support for his position.

House GOP Leader Josh Tardy, R-Newport, said the only tax reform he believes will gain Republican support would be funded by cutting state spending, not by shifting tax burdens.

“We haven’t seen anything, so I will keep an open mind,” he said. “If reform is defined as raising a tax to lower a tax, I think it will be skeptically received by the Republican caucus.”

Tardy said it is his belief that true tax reform can be accomplished only by reducing taxes, not just shifting tax burdens.

Maine State Chamber of Commerce President Dana Connors expects some sort of tax reform effort will be pushed this session and shares the concern that shifting tax burdens is not a reform.

“If you are now being taxed, and you were not paying that tax before, you are going to see that development as a tax increase,” he said, “not tax reform.”

Perry said he is pushing to make sure the package lowers the tax burden of Mainers, both through lower income tax rates and in the mix of taxes they are paying. He said the modernization of the tax code would better position the state to recover from the recession.

“When we come out of this recession we will be positioned much stronger moving forward than if we stick our heads in the sand and just say make more cuts,” he said.

Democrats believe the increased majorities they have in both the House and Senate bolster the likelihood they can pass a measure this session.